* Japan on course to become top performing stock market in Sept * Suga’s departure sparks hopes for change, political stimulus * Foreign investors bought 2 trln yen of Japan stocks TOKYO, Sept 24 (Reuters) - Japanese shares could win a rare gold medal this month, on course to become the world’s best performing market, as foreign investors piled in on hopes for economic stimulus, improving vaccine rollouts and expectations of a new prime minister. The MSCI Japan is up 6.0% this month, by far the best performance among major markets. MSCI’s gauge of both U.S. and European markets have fallen more than 1% while emerging markets have lost more than 2.5%. Japanese shares have been long overlooked by global investors as Japan’s slow economic growth, unfavourable demographics and eroding competitiveness in the tech sector prompted them to seek higher returns elsewhere. Unpopular Prime Minister Yoshihide Suga’s sudden offer of resignation on Sept 3, however, triggered massive foreign fund inflows to the market. Investors bet a new leader will be more popular and will easily win an upcoming election that must be held by November. There are also expectations for a new stimulus package to support households and businesses hit by the pandemic. Data from Japan Exchange Group showed foreign investors have poured about two trillion yen in the last three weeks. “For many of our investors, Japan is a very low holding. Many of our clients are holding just 0%, 1% or 2% of portfolios in Japan. But in a global equity benchmark, Japan should be more like 6%. So we have a lot of potential upside from an ownership perspective,” said Kiran Ganesh, managing director at UBS Global Wealth Management in London. “In terms of catalysts, we think we will see more fiscal stimulus coming after the election... Overall, there’s a lot to like about the Japanese market at the moment, it’s been most preferred for us for a few months now.” To be sure, exchange data shows recent buying was mainly made with futures, rather than cash equities, suggesting it was led by short-term speculators rather than long-term investors. Some investors also said they have not changed their position on Japanese equities in recent weeks. BlackRock, the world’s largest asset management firm, for instance, said its position on Japan remains neutral after upgrading it in early July. Still, some other fund managers said they have a positive view on the market. Mary Nicola, global multi-asset portfolio manager at PineBridge Investments in Singapore, said hopes for reform could accelerate if Taro Kono, the administration’s reform minister, wins the Liberal Democratic Party leadership election next week. “The three prospects we see for Japan are: firstly, catching up to other markets as vaccinations progress; second, politics with upcoming elections on Japan’s reform agenda; and finally, the global shortage in the semiconductor cycle, which is likely to pick up and support their auto industry.”